Legal

FCA business interruption insurance dispute hits Supreme Court today

Legal

James Lumley

16 November 2020

News

The dispute between UK insurers and the Financial Conduct Authority over business interruption insurance during the Covid pandemic went to the UK’s highest court today.

Judges at the Supreme Court have begun hearing submissions from lawyers representing the FCA and the insurance industry over how the wording of various business interruption policies should be interpreted.

The case is time-sensitive as it involves around 370,000 policyholders who, owing to complicated wording, are unsure whether they are entitled to make a claim for business interruption as a result of Covid-19. It has been fast-tracked from the High Court, which gave its judgment in September,

That ruling “is probably the most important insurance decision of the last decade,” lawyers for the FCA said in written submissions today.

It is “a decision of substantial importance to many thousands of businesses who are watching the progress of this case with, in some cases, desperate interest”.

The judgment that is being appealed is complicated.

The 162-page ruling does not expressly come down on one side or the other. Instead, it goes though the wordings brought up at the trial and provides specific guidance.

However, the FCA says the judges backed the arguments brought by lawyers representing policyholders in “the majority of key issues”.

The FCA, however isn’t complete satisfied with the ruling itself. It argues that “it was not successful on all points” and is seeking to appeal four issues in the ruling.

It says that four “inconsistencies and errors” in the judgment “provide substantial obstacles to indemnity for a large number of insureds”.

The case has implications for the real estate sector outside of business interruption insurance, according to Chris Ives, principal associate in Eversheds Sutherland’s insurance team. He says that similar principles may apply to “loss of rent” policies.

“Large corporate policyholders will be awaiting the final outcome with keen interest, as will the real estate sector given that many ‘loss of rent’ policies contain non-damage extensions similar to those being reviewed by the Supreme Court,” he said.

“Whilst different issues apply depending on the wording of policies, in situations where rent over the last six months is unpaid one core hurdle which landlords and tenants with non-damage extensions must overcome to make successful claims is whether rent is not being paid because of local outbreaks of Covid-19 within the vicinity of their premises or whether, as insurers have argued, interruption has been caused by the general outbreak and the national government response since March.”

He said that policyholders with loss of rent clauses are hoping the Supreme Court finds that cases of Covid-19 at a local level are recognised as a route to making a successful claim. Without clarification on this, unpaid rents are likely to be lost for good, he said.

The Supreme Court has allowed four days for the hearings, which is being held via video conference.

The judges hearing the case are Lord Hodge, Lord Reed, Lord Briggs and Lord Hamblen.

The insurers appealing are Arch Insurance (UK), Argenta Syndicate Management, MS Amlin Underwriting, Hiscox, QBE UK, Royal & Sun Alliance and Zurich.

Hiscox Action Group, which represents Hiscox customers, is also taking part in the appeal.

The dispute between UK insurers and the Financial Conduct Authority over business interruption insurance during the Covid pandemic went to the UK’s highest court today. Judges at the Supreme Court have begun hearing submissions from lawyers representing the FCA and the insurance industry over how the wording of various business interruption policies should be interpreted. The case is time-sensitive as it involves around 370,000 policyholders who, owing to complicated wording, are unsure whether they are entitled to make a claim for business interruption as a result of Covid-19. It has been fast-tracked from the High Court, which gave its judgment in September, That ruling “is probably the most important insurance decision of the last decade,” lawyers for the FCA said in written submissions today. It is “a decision of substantial importance to many thousands of businesses who are watching the progress of this case with, in some cases, desperate interest”. The judgment that is being appealed is complicated. The 162-page ruling does not expressly come down on one side or the other. Instead, it goes though the wordings brought up at the trial and provides specific guidance. However, the FCA says the judges backed the arguments brought by lawyers representing policyholders in “the majority of key issues”. The FCA, however isn’t complete satisfied with the ruling itself. It argues that “it was not successful on all points” and is seeking to appeal four issues in the ruling. It says that four “inconsistencies and errors” in the judgment “provide substantial obstacles to indemnity for a large number of insureds”. The case has implications for the real estate sector outside of business interruption insurance, according to Chris Ives, principal associate in Eversheds Sutherland’s insurance team. He says that similar principles may apply to “loss of rent” policies. “Large corporate policyholders will be awaiting the final outcome with keen interest, as will the real estate sector given that many ‘loss of rent’ policies contain non-damage extensions similar to those being reviewed by the Supreme Court,” he said. “Whilst different issues apply depending on the wording of policies, in situations where rent over the last six months is unpaid one core hurdle which landlords and tenants with non-damage extensions must overcome to make successful claims is whether rent is not being paid because of local outbreaks of Covid-19 within the vicinity of their premises or whether, as insurers have argued, interruption has been caused by the general outbreak and the national government response since March.” He said that policyholders with loss of rent clauses are hoping the Supreme Court finds that cases of Covid-19 at a local level are recognised as a route to making a successful claim. Without clarification on this, unpaid rents are likely to be lost for good, he said. The Supreme Court has allowed four days for the hearings, which is being held via video conference. The judges hearing the case are Lord Hodge, Lord Reed, Lord Briggs and Lord Hamblen. The insurers appealing are Arch Insurance (UK), Argenta Syndicate Management, MS Amlin Underwriting, Hiscox, QBE UK, Royal & Sun Alliance and Zurich. Hiscox Action Group, which represents Hiscox customers, is also taking part in the appeal.